Daily Analysis for Friday, Aug 10th
Subprime Worries Still Puzzling Investor Sentiment
Carry trades getting hurt as US subprime losses swings to European banking community, with EURUSD loosing yesterday's gains on the back of cross EURJPY selling.
MAJOR HEADLINES – PREVIOUS SESSION
- GE Trade Balance June, out at 16.5B vs 17.8B exp.
- GE Current Account June, out at 16.6B vs 12.0B exp.
- US Mortgage Applications Aug 3, out at 8.1% vs a prior reading of -0.3%.
- US Wholesale Inventories June, out at 0.5% vs 0.4% exp.
- US Crude Inventories Aug 3, out at -3623KJ vs -3844K exp.
- NZ Unemployment Rate Q2, out at 3.6% vs 3.7% exp.
- NZ Employment Change Q2, out at 0.7% va´s 0.3% exp. YoY out at 1.5% vs 1.1% exp.
- AU Unemployment Rate July, out at 4.3% vs 4.4% exp.
- AU Employment Change July, out at 21.8K vs 250.K exp.
- AU Participation Rate July, out at 65% in line with exp.
- JN Net Stocks Investment Aug 3, out at 237.0B vs a prior reading of 291.1B.
- JN Net Bonds Investment Aug 3, out at 1357.4B vs 617.3B.
THEMES TO WATCH – UPCOMING SESSION
After the Bank of England had published their quarterly inflation report, GBP-crosses went higher across the board as it now is for certain, that the Bank of England will adjust the rates 25 bp to 6.00 pct. on the September meeting. Ahead of the meeting, GBPUSD dipped lower to 2.0158, but GBP-buyers picked it up, and the pair closed in 2.0372. We expected the pair to go higher today, but as the UK bonds sold off on worreis that US subprime losses will spill over to other economies, the GBP sold off as well. Better-than-expected figures for the trade balance were not visible in today's trading. We see current support in GBPUSD at 2.0280 and then 2.0240 - resistance at the 2.04 figure.
We maintain our generally bearish view on the USD, but we might see some come back on back of the Fed meeting, where bottomline was, that inflation still is their predominant concern. In a survey, conducted by Bloomberg, 32% of the participants expected Fed to cut rates on the next meeting in the 18th of September, but his has now changed to only 20%. Key support in EURUSD is currently at 1.3710 and resisitance is seen at 1.3840/50. If we see a break of resistance, EURUSD has potential to test trend resistance (from June 06), currently at 1.39.
Overnight News Bullets
- SW AMU Unemployment Rate July, out at 3.7% in line with exp.
- NO Retail Sales June, out at 4.7% vs 0.5% exp. YoY out at 11.9% vs 6.7% exp.
- UK Visible Trade Balance June, out at -£6266 vs -£6500 exp.
- CA Housing Starts July, out at 215.6K vs 223.5K exp.
- CA New Housing Price Index June, out at 0.7% vs 0.8% exp.
- US EIA Natural Gas Storage Change Aug 3, out at 42 vs 49 exp.
- JN Domestic CGPI July, out at 0.6% in line with exp. YoY out at 2.1% in line with exp.
- JN Industrial Production June, out at 1.3% vs 1.2% exp. YoY out at 1.1% vs 1.0% exp.
- JN Capacity Utilization June, out at 105.8 vs a prior reading of 105.0.
- JN Bankruptcies (YoY) July, out at 15.6% vs 6.7% exp.
- JN Consumer Confidence July, out at 44.6 vs 46.0 exp.
Market
- FX: USD/Majors all over the place yesterday with EURUSD and GBPUSD in sharp sell-offs as carry trades once again was liquidated.
O/N Data Heat map:
| EU | US | JP | UK | SZ | AU | CA | NZ | NO | SE | FR |
| + | + | + | + |
Calendar
Today's Highlights:
Time (GMT) Region Release Consensus 08:00 NO CPI MoM / YoY (JUL) -0.2% / 0.5% 08:00 NO CPI Core MoM / YoY (JUL) -0.2% / 1.5% 10:00 EC Euro-Zone OECD Leading Indicator (JUN) 107.6 (prior) 11:00 CA Unemployment Rate (JUL) 6.1% 11:00 CA Net Change in Employment (JUL) 20K 12:30 US Import Price Index MoM/YoY (JUL) 1.0% / 2.5% 17:00 US Baker Hughes U.S. Rig Count (AUG) 1781 (prior) 18:00 US Monthly Budget Statement (JUL) -$35.0B
This and Next Week’s Highlights:
Date Region Release 12 Aug NZ Food Prices 12 Aug JN Gross Domestic Product, GDP Annualized, Nominal GDP, GDP Deflator, Current Account Total, Adjusted Current Account Total, Trade Balance 13 Aug GE Wholesale Price Index 13 Aug UK PPI Input, PPI Output, DCLG UK House Prices, Leading Indicator Index, Coincident Indicator Index, RICS House Price Balance 13 Aug US Advance Retail Sales, Retail Sales Less Autos, Business Inventories 13 Aug NZ Retail Sales, Retail Sales Ex-Auto, Retail Sales Ex Inflation 13 Aug JN Tertiary Industry Index
What's going on?
- Risk aversion came back in early Europe with BNP Paribus announcing that it was temporarily suspended rejections from three funds, which was them through yesterday in all sessions.
- Carry trades was being sold heavily yesterday, we look for closes in USDJPY below 118.00 and EURJPY below 159.30 (200 day MA) to confirm further unwinding next week.
FX
USD strength due to liquidity crunch. Funds doing EURUSD forwards just to get USD on the book.
| EUR | USD | JPY | GBP | CHF | AUD | CAD | NZD | NOK | SEK | PLN |
| + | + | + |
FX Trading Strategies
| Pair | Supp. | Resis. | Comments |
| GBPUSD | 2.00 | 2.04 | Market exposed to very choppy trading as subprime /credit market turmoil spills over into other assets. If USD-strength continues, GBP looks weak below 2.0156 offer. Stop bid at 2.0201. Target 2.0050. |
| NOKSEK | 1.15 | 1.17 | Buy the break of resistance. Stop bid at 1.1670. Target 1.1754. |
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